Has the Big Tech Bubble Burst?

Has the Big Tech Bubble Burst?
Traders work after the opening bell at the New York Stock Exchange (NYSE) on Oct. 28, 2019. (ohannes Eisele/AFP via Getty Images)
Jeffrey A. Tucker

The extraordinary gains on Wall Street from Oct. 28 were stunning, but it’s the details that matter. What didn’t participate in the sudden exuberance were the tech stocks that have performed so well over the past three years and even dating back to 2009. The enthusiasm was all about value stocks, those old-fashioned companies with valuations that reflect actual assets and earnings and are likely to pay dividends.

What accounts for the sudden runup? There was no one reason, but it was also the day of the greatest news we’ve had from American business in three years: Elon Musk successfully took over Twitter and summarily fired its top executives, who had been running roughshod over free information flows since the start of the COVID-19 pandemic response. They were openly partisan and aggressive about it. Musk really has freed the bird and has plans for massive cuts in labor costs.

It was a beautiful sight to behold because it carries a message: Things aren’t hopeless. All isn’t lost. Free enterprise can make a comeback. American industry can be saved under the right conditions. And the timing is great here too because it happened with the midterm elections only 10 days away, and there’s every indication that the monopoly power of woke statism can be shattered.

The great challenge hitting financial markets is the fastest runup in the federal funds rate in the entire postwar period. It’s not high by historical standards: 3.08 percent. What matters is the pace and steepness of the upward curve: It’s nearly vertical. We’ve never seen anything like this before. It clearly reflects an absolutely panicked Fed attempting to reverse the effects of its previous panic in 2020, when it flooded the world with $6.3 trillion in phony money to compensate for pandemic lockdowns.

The question everyone is asking now is, what kinds of enterprises survive in this penurious environment? The ridiculous zero-interest-rate policy had become the norm following the real-estate bust of 2008, prompting every kind of market distortion for a solid 10 years. The Fed was carefully stepping away from this policy from 2017 forward until, boom, it was called upon to monetize crazed congressional spending from March 2020 onward.

It stepped up, and the rest follows: sky-high everything, falling real income, and voter fury.

Again, we’ve never before seen the Fed panic this much this fast. It’s clear that no one at the Fed pays any attention to the Biden administration’s daily assurances that inflation isn’t so bad and is being gradually tamed. Powell is determined to write his legacy not as a wild inflationist but rather as a tough-minded killer of inflation, such as Paul Volcker. Actually, Powell faces a more daunting task, given the deep damage of zero-interest policies.

Real companies making real things can survive a tight-money, high-interest-rate environment because their financials are sound. Companies that float along on cheap credit and the hope of infinitely rising stock valuations face extreme challenges in such an environment. We’ve known this since forever, but somehow the lesson never sinks in. The dot-com boom-bust seemed fated to happen yet again.

Hit hard on Oct. 28 were Alphabet (formerly known as Google), Meta (formerly known as Facebook), and Amazon. All these were huge performers during the lockdowns. All three gleefully participated in censorship at the direction of the federal government and the Centers for Disease Control and Prevention. Linked to lockdown support was also an aggressive stance for left-wing pontifications from the likes of Netflix. Apple has been hit least among them because the company has avoided the culture/COVID wars.

Consider the year-over-year change in market capitalization:
  • Meta: minus 78 percent
  • Microsoft: minus 29.4 percent
  • Alphabet/Google: minus 35.6 percent
  • Amazon: minus 39 percent
  • Nvidia: minus 46.8 percent
  • Disney: minus 37 percent
  • Netflix: minus 57.5 percent
YouTube (owned by Alphabet) took down videos by scientists and data mavens that contradicted government priorities. Facebook is still doing this now and hectoring all its users to read government propaganda rather than their own friends’ thoughts. Amazon unplugged whole companies that had elected to use its server platform.

What does this do to users’ trust? It shatters it and the whole business model along with it. We’ve all been urged for 15 years to build our network, grow our channel, engage more with fans, and make ever more content for these companies to monetize. They take our data and market access to it so that we can get paid ad pushes. The whole machinery depends fundamentally on the idea that users trust the companies to guard their interests.

But instead of earning that trust, they spent these years betraying it. How in the world could they have strayed so far from the fundamentals of free enterprise? The simple answer is that they freed themselves from market discipline. With easy credit and frothy markets, followed by policies that locked people in their homes and imposed forced usage, these companies rode the wave. They beefed up their censorship regime, invested in massive layers of human resources and management structures, glommed onto every fashionable cause, and signed up to be purveyors of “woke” philosophy and regime priorities.

In these years, we saw a remarkable shift. In the entire postwar period, the highest performers in public markets tended to line up their political priorities with the Chamber of Commerce and the Republican Party. All that changed with the rise of Big Tech, which relies on social media support. Suddenly, the dominant players in industry became backers of the Democrats.

One might assume that this change had something to do with the generational shift. The 30-somethings who inhabited the C suites of these companies were educated in corrupt university environments that preached left-wing philosophy while censoring the core of Western ideals. There’s truth to that, but it still begs the question of how these people came to be in charge.

Here’s where the Fed comes into play, which, in the view of David Stockman, became the unlimited fund of easy money that subsidized this worldview.

“Twitter’s phony ‘content moderation’ operation was not unique, but symptomatic of a much broader perversion of corporate management throughout Silicon Valley and much of corporate America, too,” Stockman wrote. “The stock market was so fantastically overvalued owing to the Fed’s egregious money printing that executives were given leave to pursue their political and ideological hobby horses on a whim, rather than keep their noses on the grindstone of profit and loss. That is, stock prices were carried to such fantastic heights on the backs of utterly absurd valuation multiples that shareholders looked the other way.

“For instance, when Disney’s woke executives attacked the family values on which its franchise is based or when Amazon banned books that were perfectly saleable or when Facebook dumped overboard content and users that Mark Zuckerberg deemed unhelpful to the (D)emocratic cause. Even PayPal, which ironically is the original source of Musk’s fortune, joined the fray.”

That’s a fascinating theory. It makes sense to me. But what does it say about the future? Facebook’s user base is aging and ever less engaged, and no wonder: Absolutely no one needs more exhortations to read more CDC drivel. That Zuckerberg really believed that headset-controlled access to animated fakery would somehow save his company boggles the mind. Meanwhile, trust in platforms such as YouTube and Microsoft-owned LinkedIn has been shattered by these content-moderation policies.

A tight-money world is gradually reintroducing reality not only to financial markets but to labor markets, too. The firings at Big Tech are a wake-up call: Get a skill and get productive or make nice with Mom and Dad, who still have that basement room waiting for you. It looks like the magic world of PJ-clad Zooming while earning the big bucks isn’t long for this world. Unemployment is surely going to tick up as the recession closes in, but it won’t hurt people with marketable skills so much as the latte’d elites who cheered the lockdowns, censored dissidents, and voted straight Democrat.

Musk knows exactly where this history is headed and has decided to invest in the idea of freedom itself. As we all should.

Jeffrey A. Tucker is the founder and president of the Brownstone Institute and the author of many thousands of articles in the scholarly and popular press, as well as 10 books in five languages, most recently “Liberty or Lockdown.” He is also the editor of “The Best of Ludwig von Mises.” He writes a daily column on economics for The Epoch Times and speaks widely on the topics of economics, technology, social philosophy, and culture.
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